Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2021; Report to Congressional Committees, 64475-64477 [2021-25159]
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Federal Register / Vol. 86, No. 220 / Thursday, November 18, 2021 / Notices
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[FR Doc. 2021–25189 Filed 11–17–21; 8:45 am]
BILLING CODE 8070–01–P
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
FEDERAL RESERVE SYSTEM
64475
OCC: Andrew Tschirhart, Risk Expert,
Capital and Regulatory Policy, (202)
649–6370, Rima Kundnani, Counsel,
Chief Counsel’s Office, (202) 649–5490,
Office of the Comptroller of the
Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Andrew Willis, Manager, (202)
912–4323, Jennifer McClean, Senior
Financial Institution Policy Analyst II,
(202) 785–6033, Division of Supervision
and Regulation, Board of Governors of
the Federal Reserve System, 20th Street
and Constitution Avenue NW,
Washington, DC 20551.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, (703) 245–0778, Richard
Smith, Capital Policy Analyst, Capital
Policy Section, (703) 254–0782, Division
of Risk Management Supervision,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429.
The text of
FEDERAL DEPOSIT INSURANCE
CORPORATION
SUPPLEMENTARY INFORMATION:
Joint Report: Differences in
Accounting and Capital Standards
Among the Federal Banking Agencies
as of September 30, 2021; Report to
Congressional Committees
Report to the Committee on Financial
Services of the U.S. House of
Representatives and to the Committee
on Banking, Housing, and Urban
Affairs of the U.S. Senate Regarding
Differences in Accounting and Capital
Standards Among the Federal Banking
Agencies
Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Report to Congressional
committees.
AGENCY:
The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the agencies) have
prepared this report pursuant to section
37(c) of the Federal Deposit Insurance
Act. Section 37(c) requires the agencies
to jointly submit an annual report to the
Committee on Financial Services of the
U.S. House of Representatives and to the
Committee on Banking, Housing, and
Urban Affairs of the U.S. Senate
describing differences among the
accounting and capital standards used
by the agencies for insured depository
institutions (institutions).1 Section 37(c)
requires that this report be published in
the Federal Register. The agencies have
not identified any material differences
among the agencies’ accounting and
capital standards applicable to the
insured depository institutions they
regulate and supervise.
FOR FURTHER INFORMATION CONTACT:
SUMMARY:
1 12
PO 00000
U.S.C. 1831n(c)(1) and 12 U.S.C. 1831n(c)(3).
Frm 00031
Fmt 4703
Sfmt 4703
the report follows:
Introduction
In accordance with section 37(c), the
agencies are submitting this joint report,
which covers differences among their
accounting or capital standards existing
as of September 30, 2021, applicable to
institutions.2 In recent years, the
agencies have acted together to
harmonize their accounting and capital
standards and eliminate as many
differences as possible. As of September
30, 2021, the agencies have not
identified any material differences
among the agencies’ accounting
standards applicable to institutions.
In 2013, the agencies revised the riskbased and leverage capital rule for
institutions (capital rule),3 which
harmonized the agencies’ capital rule in
2 Although not required under section 37(c), this
report includes descriptions of certain of the
Board’s capital standards applicable to depository
institution holding companies where such
descriptions are relevant to the discussion of capital
standards applicable to institutions.
3 See 78 FR 62018 (October 11, 2013) (final rule
issued by the OCC and the Board); 78 FR 55340
(September 10, 2013) (interim final rule issued by
the FDIC). The FDIC later issued its final rule in 79
FR 20754 (April 14, 2014). The agencies’ respective
capital rule is at 12 CFR part 3 (OCC), 12 CFR part
217 (Board), and 12 CFR part 324 (FDIC). The
capital rule applies to institutions, as well as to
certain bank holding companies and savings and
loan holding companies. See 12 CFR 217.1(c).
E:\FR\FM\18NON1.SGM
18NON1
64476
Federal Register / Vol. 86, No. 220 / Thursday, November 18, 2021 / Notices
a comprehensive manner.4 Since 2013,
the agencies have revised the capital
rule on several occasions, further
reducing the number of differences in
the agencies’ capital rule.5 Today, only
a few differences remain, which are
statutorily mandated for certain
categories of institutions or which
reflect certain technical, generally
nonmaterial differences among the
agencies’ capital rule. No new material
differences were identified in the capital
standards applicable to institutions in
this report compared to the previous
report submitted by the agencies
pursuant to section 37(c).
Differences in the Standards Among the
Federal Banking Agencies
Differences in Accounting Standards
As of September 30, 2021, the
agencies have not identified any
material differences among themselves
in the accounting standards applicable
to institutions.
Differences in Capital Standards
The following are the remaining
technical differences among the capital
standards of the agencies’ capital rule.6
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Definitions
The agencies’ capital rule largely
contains the same definitions.7 The
differences that exist generally serve to
accommodate the different needs of the
institutions that each agency charters,
regulates, and/or supervises.
The agencies’ capital rule has
differing definitions of a pre-sold
construction loan. The capital rule of all
three agencies provides that a pre-sold
construction loan means any ‘‘one-tofour family residential construction loan
to a builder that meets the requirements
of section 618(a)(1) or (2) of the
Resolution Trust Corporation
Refinancing, Restructuring, and
Improvement Act of 1991 (12 U.S.C.
4 The capital rule reflects the scope of each
agency’s regulatory jurisdiction. For example, the
Board’s capital rule includes requirements related
to bank holding companies, savings and loan
holding companies, and state member banks, while
the FDIC’s capital rule includes provisions for state
nonmember banks and state savings associations,
and the OCC’s capital rule includes provisions for
national banks and federal savings associations.
5 See e.g., 84 FR 35234 (July 22, 2019). The OCC
and FDIC revised their capital rule to conform with
language in the Board’s capital rule related to the
qualification criteria for additional tier 1 capital
instruments and the definition of corporate
exposures. As a result, these differences, which
were included in previous reports submitted by the
agencies pursuant to section 37(c), have been
eliminated.
6 Certain minor differences, such as terminology
specific to each agency for the institutions that it
supervises, are not included in this report.
7 See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12
CFR 324.2 (FDIC).
VerDate Sep<11>2014
17:11 Nov 17, 2021
Jkt 256001
1831n), and, in addition to other
criteria, the purchaser has not
terminated the contract.’’ 8 The Board’s
definition provides further clarification
that, if a purchaser has terminated the
contract, the institution must
immediately apply a 100 percent risk
weight to the loan and report the revised
risk weight in the next quarterly
Consolidated Reports of Condition and
Income (Call Report).9 Similarly, if the
purchaser has terminated the contract,
the OCC and FDIC capital rule would
immediately disqualify the loan from
receiving a 50 percent risk weight, and
would apply a 100 percent risk weight
to the loan. The change in risk weight
would be reflected in the next quarterly
Call Report. Thus, the minor wording
difference between the agencies should
have no practical consequence.
Capital Components and Eligibility
Criteria for Regulatory Capital
Instruments
While the capital rule generally
provides uniform eligibility criteria for
regulatory capital instruments, there are
some textual differences among the
agencies’ capital rule. The capital rule of
each of the three agencies requires that,
for an instrument to qualify as common
equity tier 1 or additional tier 1 capital,
cash dividend payments be paid out of
net income and retained earnings, but
the Board’s capital rule also allows cash
dividend payments to be paid out of
related surplus.10 In addition, both the
Board’s capital rule and the FDIC’s
capital rule include an additional
sentence noting that institutions
regulated by each agency are subject to
restrictions independent of the capital
rule on paying dividends out of surplus
and/or that would result in a reduction
of capital stock.11 These additional
sentences do not create differences in
substance between the agencies’ capital
standards, but rather note that
restrictions apply under separate
regulations.
The provision in the Board’s capital
rule that allows dividends to be paid out
of related surplus is a difference in
substance among the agencies’ capital
8 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR
324.2 (FDIC).
9 12 CFR 217.2.
10 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii)
(Board).
11 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii)
(Board); 12 CFR 324.20(b)(1)(v) and
324.20(c)(1)(viii) (FDIC). Although not referenced in
the capital rule, the OCC has similar restrictions on
dividends; 12 CFR 5.55 and 12 CFR 5.63. Certain
restrictions on the payment of dividends that apply
under separate regulations, and therefore not
discussed in this report, are different among the
agencies. Compare 12 CFR 208.5 (Board) and 12
CFR 5.64 (OCC) with 12 CFR 303.241 (FDIC).
PO 00000
Frm 00032
Fmt 4703
Sfmt 4703
rule. However, due to the restrictions on
institutions regulated by the Board in
separate regulations, this additional
language in the Board’s rule has a
practical impact only on bank holding
companies and savings and loan
holding companies and is not a
difference as applied to institutions. The
agencies apply the criteria for
determining eligibility of regulatory
capital instruments in a manner that
ensures consistent outcomes for
institutions.
In addition, the Board’s capital rule
includes a requirement that a Boardregulated institution 12 must obtain
prior approval before redeeming
regulatory capital instruments.13 This
requirement effectively applies only to a
bank holding company or a savings and
loan holding company and is, therefore,
not included in the OCC and FDIC
capital rule. All three agencies require
institutions to obtain prior approval
before redeeming regulatory capital
instruments in other regulations.14 The
additional provision in the Board’s
capital rule, therefore, only has a
practical impact on bank holding
companies and savings and loan
holding companies and is not a
difference as applied to institutions.
Capital Deductions
There is a technical difference
between the FDIC’s capital rule and the
OCC’s and Board’s capital rule with
regards to an explicit requirement for
deduction of examiner-identified losses.
The agencies require their examiners to
determine whether their respective
supervised institutions have
appropriately identified losses. The
FDIC’s capital rule, however, explicitly
requires FDIC-supervised institutions to
deduct identified losses from common
equity tier 1 capital elements, to the
extent that the institutions’ common
equity tier 1 capital would have been
reduced if the appropriate accounting
entries had been recorded.15 Generally,
identified losses are those items that an
examiner determines to be chargeable
against income, capital, or general
valuation allowances.
For example, identified losses may
include, among other items, assets
classified as loss, off-balance-sheet
items classified as loss, any expenses
that are necessary for the institution to
record in order to replenish its general
12 Board-regulated institution means a state
member bank, bank holding company, or savings
and loan holding company. See 12 CFR 217.2.
13 12 CFR 217.20(f); see also 12 CFR
217.20(b)(1)(iii).
14 See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC);
12 CFR 208.5 (Board); 12 CFR 303.241 (FDIC).
15 12 CFR 324.22(a)(9).
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Federal Register / Vol. 86, No. 220 / Thursday, November 18, 2021 / Notices
valuation allowances to an adequate
level, and estimated losses on
contingent liabilities. The Board and the
OCC expect their supervised institutions
to promptly recognize examineridentified losses, but the requirement is
not explicit under their capital rule.
Instead, the Board and the OCC apply
their supervisory authorities to ensure
that their supervised institutions charge
off any identified losses.
Subsidiaries of Savings Associations
There are special statutory
requirements for the agencies’ capital
treatment of a savings association’s
investment in or credit to its
subsidiaries as compared with the
capital treatment of such transactions
between other types of institutions and
their subsidiaries. Specifically, the
Home Owners’ Loan Act (HOLA)
distinguishes between subsidiaries of
savings associations engaged in
activities that are permissible for
national banks and those engaged in
activities that are not permissible for
national banks.16
When subsidiaries of a savings
association are engaged in activities that
are not permissible for national banks,17
the parent savings association generally
must deduct the parent’s investment in
and extensions of credit to these
subsidiaries from the capital of the
parent savings association. If a
subsidiary of a savings association
engages solely in activities permissible
for national banks, no deduction is
required and investments in and loans
to that organization may be assigned the
risk weight appropriate for the
activity.18 As the appropriate federal
banking agencies for federal and state
savings associations, respectively, the
OCC and the FDIC apply this capital
treatment to those types of institutions.
The Board’s regulatory capital
framework does not apply to savings
associations and, therefore, does not
include this requirement.
khammond on DSKJM1Z7X2PROD with NOTICES
Tangible Capital Requirement
Federal statutory law subjects savings
associations to a specific tangible capital
requirement but does not similarly do so
with respect to banks. Under section
5(t)(2)(B) of HOLA, savings associations
are required to maintain tangible capital
in an amount not less than 1.5 percent
16 12
U.S.C. 1464(t)(5).
engaged in activities not
permissible for national banks are considered nonincludable subsidiaries.
18 A deduction from capital is only required to the
extent that the savings association’s investment
exceeds the generally applicable thresholds for
deduction of investments in the capital of an
unconsolidated financial institution.
17 Subsidiaries
VerDate Sep<11>2014
17:11 Nov 17, 2021
Jkt 256001
64477
of total assets.19 The capital rule of the
OCC and the FDIC includes a
requirement that savings associations
maintain a tangible capital ratio of 1.5
percent.20 This statutory requirement
does not apply to banks and, thus, there
is no comparable regulatory provision
for banks. The distinction is of little
practical consequence, however,
because under the Prompt Corrective
Action (PCA) framework, all institutions
are considered critically
undercapitalized if their tangible equity
falls below 2 percent of total assets.21
Generally speaking, the appropriate
federal banking agency must appoint a
receiver within 90 days after an
institution becomes critically
undercapitalized.22
more than $10 trillion in assets under
custody.26
Enhanced Supplementary Leverage
Ratio
Formations of, Acquisitions by, and
Mergers of Bank Holding Companies
The agencies adopted enhanced
supplementary leverage ratio standards
that took effect beginning on January 1,
2018.23 These standards require certain
bank holding companies to exceed a 5
percent supplementary leverage ratio to
avoid limitations on distributions and
certain discretionary bonus payments
and also require the subsidiary
institutions of these bank holding
companies to meet a 6 percent
supplementary leverage ratio to be
considered ‘‘well capitalized’’ under the
PCA framework.24 The rule text
establishing the scope of application for
the enhanced supplementary leverage
ratio differs among the agencies. The
Board and the FDIC apply the enhanced
supplementary leverage ratio standards
for institutions based on parent bank
holding companies being identified as
global systemically important bank
holding companies as defined in 12 CFR
217.2.25 The OCC applies enhanced
supplementary leverage ratio standards
to the institution subsidiaries under
their supervisory jurisdiction of a toptier bank holding company that has
more than $700 billion in total assets or
The companies listed in this notice
have applied to the Board for approval,
pursuant to the Bank Holding Company
Act of 1956 (12 U.S.C. 1841 et seq.)
(BHC Act), Regulation Y (12 CFR part
225), and all other applicable statutes
and regulations to become a bank
holding company and/or to acquire the
assets or the ownership of, control of, or
the power to vote shares of a bank or
bank holding company and all of the
banks and nonbanking companies
owned by the bank holding company,
including the companies listed below.
The public portions of the
applications listed below, as well as
other related filings required by the
Board, if any, are available for
immediate inspection at the Federal
Reserve Bank(s) indicated below and at
the offices of the Board of Governors.
This information may also be obtained
on an expedited basis, upon request, by
contacting the appropriate Federal
Reserve Bank and from the Board’s
Freedom of Information Office at
https://www.federalreserve.gov/foia/
request.htm. Interested persons may
express their views in writing on the
standards enumerated in the BHC Act
(12 U.S.C. 1842(c)).
Comments regarding each of these
applications must be received at the
Reserve Bank indicated or the offices of
the Board of Governors, Ann E.
Misback, Secretary of the Board, 20th
Street and Constitution Avenue NW,
Washington, DC 20551–0001, not later
than December 20, 2021.
A. Federal Reserve Bank of Dallas
(Karen Smith, Director, Applications)
2200 North Pearl Street, Dallas, Texas
75201–2272:
19 12
U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(6)
(FDIC). The Board’s regulatory capital framework
does not apply to savings associations and,
therefore, does not include this requirement.
21 See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4
(OCC); 12 CFR 208.45 (Board); 12 CFR 324.403
(FDIC).
22 12 U.S.C. 1831o(h)(3)(A).
23 See 79 FR 24528 (May 1, 2014).
24 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR
208.43(b)(1)(iv)(B) (Board); 12 CFR 324.403(b)(1)(v)
(FDIC).
25 12 CFR 208.43(b)(1)(iv)(B) (Board); 12 CFR
324.403(b)(1)(ii) (FDIC).
20 12
PO 00000
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Fmt 4703
Sfmt 4703
Michael J. Hsu,
Acting Comptroller of the Currency.
Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on November 8,
2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021–25159 Filed 11–17–21; 8:45 am]
BILLING CODE P
FEDERAL RESERVE SYSTEM
26 12
E:\FR\FM\18NON1.SGM
CFR 6.4(b)(1)(i)(D)(2) (OCC).
18NON1
Agencies
[Federal Register Volume 86, Number 220 (Thursday, November 18, 2021)]
[Notices]
[Pages 64475-64477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25159]
=======================================================================
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION
Joint Report: Differences in Accounting and Capital Standards
Among the Federal Banking Agencies as of September 30, 2021; Report to
Congressional Committees
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Report to Congressional committees.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies) have
prepared this report pursuant to section 37(c) of the Federal Deposit
Insurance Act. Section 37(c) requires the agencies to jointly submit an
annual report to the Committee on Financial Services of the U.S. House
of Representatives and to the Committee on Banking, Housing, and Urban
Affairs of the U.S. Senate describing differences among the accounting
and capital standards used by the agencies for insured depository
institutions (institutions).\1\ Section 37(c) requires that this report
be published in the Federal Register. The agencies have not identified
any material differences among the agencies' accounting and capital
standards applicable to the insured depository institutions they
regulate and supervise.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1831n(c)(1) and 12 U.S.C. 1831n(c)(3).
FOR FURTHER INFORMATION CONTACT:
OCC: Andrew Tschirhart, Risk Expert, Capital and Regulatory Policy,
(202) 649-6370, Rima Kundnani, Counsel, Chief Counsel's Office, (202)
649-5490, Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Andrew Willis, Manager, (202) 912-4323, Jennifer McClean,
Senior Financial Institution Policy Analyst II, (202) 785-6033,
Division of Supervision and Regulation, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
FDIC: Benedetto Bosco, Chief, Capital Policy Section, (703) 245-
0778, Richard Smith, Capital Policy Analyst, Capital Policy Section,
(703) 254-0782, Division of Risk Management Supervision, Federal
Deposit Insurance Corporation, 550 17th Street NW, Washington, DC
20429.
SUPPLEMENTARY INFORMATION: The text of the report follows:
Report to the Committee on Financial Services of the U.S. House of
Representatives and to the Committee on Banking, Housing, and Urban
Affairs of the U.S. Senate Regarding Differences in Accounting and
Capital Standards Among the Federal Banking Agencies
Introduction
In accordance with section 37(c), the agencies are submitting this
joint report, which covers differences among their accounting or
capital standards existing as of September 30, 2021, applicable to
institutions.\2\ In recent years, the agencies have acted together to
harmonize their accounting and capital standards and eliminate as many
differences as possible. As of September 30, 2021, the agencies have
not identified any material differences among the agencies' accounting
standards applicable to institutions.
---------------------------------------------------------------------------
\2\ Although not required under section 37(c), this report
includes descriptions of certain of the Board's capital standards
applicable to depository institution holding companies where such
descriptions are relevant to the discussion of capital standards
applicable to institutions.
---------------------------------------------------------------------------
In 2013, the agencies revised the risk-based and leverage capital
rule for institutions (capital rule),\3\ which harmonized the agencies'
capital rule in
[[Page 64476]]
a comprehensive manner.\4\ Since 2013, the agencies have revised the
capital rule on several occasions, further reducing the number of
differences in the agencies' capital rule.\5\ Today, only a few
differences remain, which are statutorily mandated for certain
categories of institutions or which reflect certain technical,
generally nonmaterial differences among the agencies' capital rule. No
new material differences were identified in the capital standards
applicable to institutions in this report compared to the previous
report submitted by the agencies pursuant to section 37(c).
---------------------------------------------------------------------------
\3\ See 78 FR 62018 (October 11, 2013) (final rule issued by the
OCC and the Board); 78 FR 55340 (September 10, 2013) (interim final
rule issued by the FDIC). The FDIC later issued its final rule in 79
FR 20754 (April 14, 2014). The agencies' respective capital rule is
at 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR part 324
(FDIC). The capital rule applies to institutions, as well as to
certain bank holding companies and savings and loan holding
companies. See 12 CFR 217.1(c).
\4\ The capital rule reflects the scope of each agency's
regulatory jurisdiction. For example, the Board's capital rule
includes requirements related to bank holding companies, savings and
loan holding companies, and state member banks, while the FDIC's
capital rule includes provisions for state nonmember banks and state
savings associations, and the OCC's capital rule includes provisions
for national banks and federal savings associations.
\5\ See e.g., 84 FR 35234 (July 22, 2019). The OCC and FDIC
revised their capital rule to conform with language in the Board's
capital rule related to the qualification criteria for additional
tier 1 capital instruments and the definition of corporate
exposures. As a result, these differences, which were included in
previous reports submitted by the agencies pursuant to section
37(c), have been eliminated.
---------------------------------------------------------------------------
Differences in the Standards Among the Federal Banking Agencies
Differences in Accounting Standards
As of September 30, 2021, the agencies have not identified any
material differences among themselves in the accounting standards
applicable to institutions.
Differences in Capital Standards
The following are the remaining technical differences among the
capital standards of the agencies' capital rule.\6\
---------------------------------------------------------------------------
\6\ Certain minor differences, such as terminology specific to
each agency for the institutions that it supervises, are not
included in this report.
---------------------------------------------------------------------------
Definitions
The agencies' capital rule largely contains the same
definitions.\7\ The differences that exist generally serve to
accommodate the different needs of the institutions that each agency
charters, regulates, and/or supervises.
---------------------------------------------------------------------------
\7\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2
(FDIC).
---------------------------------------------------------------------------
The agencies' capital rule has differing definitions of a pre-sold
construction loan. The capital rule of all three agencies provides that
a pre-sold construction loan means any ``one-to-four family residential
construction loan to a builder that meets the requirements of section
618(a)(1) or (2) of the Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n), and, in
addition to other criteria, the purchaser has not terminated the
contract.'' \8\ The Board's definition provides further clarification
that, if a purchaser has terminated the contract, the institution must
immediately apply a 100 percent risk weight to the loan and report the
revised risk weight in the next quarterly Consolidated Reports of
Condition and Income (Call Report).\9\ Similarly, if the purchaser has
terminated the contract, the OCC and FDIC capital rule would
immediately disqualify the loan from receiving a 50 percent risk
weight, and would apply a 100 percent risk weight to the loan. The
change in risk weight would be reflected in the next quarterly Call
Report. Thus, the minor wording difference between the agencies should
have no practical consequence.
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\8\ 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC).
\9\ 12 CFR 217.2.
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Capital Components and Eligibility Criteria for Regulatory Capital
Instruments
While the capital rule generally provides uniform eligibility
criteria for regulatory capital instruments, there are some textual
differences among the agencies' capital rule. The capital rule of each
of the three agencies requires that, for an instrument to qualify as
common equity tier 1 or additional tier 1 capital, cash dividend
payments be paid out of net income and retained earnings, but the
Board's capital rule also allows cash dividend payments to be paid out
of related surplus.\10\ In addition, both the Board's capital rule and
the FDIC's capital rule include an additional sentence noting that
institutions regulated by each agency are subject to restrictions
independent of the capital rule on paying dividends out of surplus and/
or that would result in a reduction of capital stock.\11\ These
additional sentences do not create differences in substance between the
agencies' capital standards, but rather note that restrictions apply
under separate regulations.
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\10\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board).
\11\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board); 12
CFR 324.20(b)(1)(v) and 324.20(c)(1)(viii) (FDIC). Although not
referenced in the capital rule, the OCC has similar restrictions on
dividends; 12 CFR 5.55 and 12 CFR 5.63. Certain restrictions on the
payment of dividends that apply under separate regulations, and
therefore not discussed in this report, are different among the
agencies. Compare 12 CFR 208.5 (Board) and 12 CFR 5.64 (OCC) with 12
CFR 303.241 (FDIC).
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The provision in the Board's capital rule that allows dividends to
be paid out of related surplus is a difference in substance among the
agencies' capital rule. However, due to the restrictions on
institutions regulated by the Board in separate regulations, this
additional language in the Board's rule has a practical impact only on
bank holding companies and savings and loan holding companies and is
not a difference as applied to institutions. The agencies apply the
criteria for determining eligibility of regulatory capital instruments
in a manner that ensures consistent outcomes for institutions.
In addition, the Board's capital rule includes a requirement that a
Board-regulated institution \12\ must obtain prior approval before
redeeming regulatory capital instruments.\13\ This requirement
effectively applies only to a bank holding company or a savings and
loan holding company and is, therefore, not included in the OCC and
FDIC capital rule. All three agencies require institutions to obtain
prior approval before redeeming regulatory capital instruments in other
regulations.\14\ The additional provision in the Board's capital rule,
therefore, only has a practical impact on bank holding companies and
savings and loan holding companies and is not a difference as applied
to institutions.
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\12\ Board-regulated institution means a state member bank, bank
holding company, or savings and loan holding company. See 12 CFR
217.2.
\13\ 12 CFR 217.20(f); see also 12 CFR 217.20(b)(1)(iii).
\14\ See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC); 12 CFR 208.5
(Board); 12 CFR 303.241 (FDIC).
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Capital Deductions
There is a technical difference between the FDIC's capital rule and
the OCC's and Board's capital rule with regards to an explicit
requirement for deduction of examiner-identified losses. The agencies
require their examiners to determine whether their respective
supervised institutions have appropriately identified losses. The
FDIC's capital rule, however, explicitly requires FDIC-supervised
institutions to deduct identified losses from common equity tier 1
capital elements, to the extent that the institutions' common equity
tier 1 capital would have been reduced if the appropriate accounting
entries had been recorded.\15\ Generally, identified losses are those
items that an examiner determines to be chargeable against income,
capital, or general valuation allowances.
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\15\ 12 CFR 324.22(a)(9).
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For example, identified losses may include, among other items,
assets classified as loss, off-balance-sheet items classified as loss,
any expenses that are necessary for the institution to record in order
to replenish its general
[[Page 64477]]
valuation allowances to an adequate level, and estimated losses on
contingent liabilities. The Board and the OCC expect their supervised
institutions to promptly recognize examiner-identified losses, but the
requirement is not explicit under their capital rule. Instead, the
Board and the OCC apply their supervisory authorities to ensure that
their supervised institutions charge off any identified losses.
Subsidiaries of Savings Associations
There are special statutory requirements for the agencies' capital
treatment of a savings association's investment in or credit to its
subsidiaries as compared with the capital treatment of such
transactions between other types of institutions and their
subsidiaries. Specifically, the Home Owners' Loan Act (HOLA)
distinguishes between subsidiaries of savings associations engaged in
activities that are permissible for national banks and those engaged in
activities that are not permissible for national banks.\16\
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\16\ 12 U.S.C. 1464(t)(5).
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When subsidiaries of a savings association are engaged in
activities that are not permissible for national banks,\17\ the parent
savings association generally must deduct the parent's investment in
and extensions of credit to these subsidiaries from the capital of the
parent savings association. If a subsidiary of a savings association
engages solely in activities permissible for national banks, no
deduction is required and investments in and loans to that organization
may be assigned the risk weight appropriate for the activity.\18\ As
the appropriate federal banking agencies for federal and state savings
associations, respectively, the OCC and the FDIC apply this capital
treatment to those types of institutions. The Board's regulatory
capital framework does not apply to savings associations and,
therefore, does not include this requirement.
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\17\ Subsidiaries engaged in activities not permissible for
national banks are considered non-includable subsidiaries.
\18\ A deduction from capital is only required to the extent
that the savings association's investment exceeds the generally
applicable thresholds for deduction of investments in the capital of
an unconsolidated financial institution.
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Tangible Capital Requirement
Federal statutory law subjects savings associations to a specific
tangible capital requirement but does not similarly do so with respect
to banks. Under section 5(t)(2)(B) of HOLA, savings associations are
required to maintain tangible capital in an amount not less than 1.5
percent of total assets.\19\ The capital rule of the OCC and the FDIC
includes a requirement that savings associations maintain a tangible
capital ratio of 1.5 percent.\20\ This statutory requirement does not
apply to banks and, thus, there is no comparable regulatory provision
for banks. The distinction is of little practical consequence, however,
because under the Prompt Corrective Action (PCA) framework, all
institutions are considered critically undercapitalized if their
tangible equity falls below 2 percent of total assets.\21\ Generally
speaking, the appropriate federal banking agency must appoint a
receiver within 90 days after an institution becomes critically
undercapitalized.\22\
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\19\ 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
\20\ 12 CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(6) (FDIC). The
Board's regulatory capital framework does not apply to savings
associations and, therefore, does not include this requirement.
\21\ See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4 (OCC); 12
CFR 208.45 (Board); 12 CFR 324.403 (FDIC).
\22\ 12 U.S.C. 1831o(h)(3)(A).
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Enhanced Supplementary Leverage Ratio
The agencies adopted enhanced supplementary leverage ratio
standards that took effect beginning on January 1, 2018.\23\ These
standards require certain bank holding companies to exceed a 5 percent
supplementary leverage ratio to avoid limitations on distributions and
certain discretionary bonus payments and also require the subsidiary
institutions of these bank holding companies to meet a 6 percent
supplementary leverage ratio to be considered ``well capitalized''
under the PCA framework.\24\ The rule text establishing the scope of
application for the enhanced supplementary leverage ratio differs among
the agencies. The Board and the FDIC apply the enhanced supplementary
leverage ratio standards for institutions based on parent bank holding
companies being identified as global systemically important bank
holding companies as defined in 12 CFR 217.2.\25\ The OCC applies
enhanced supplementary leverage ratio standards to the institution
subsidiaries under their supervisory jurisdiction of a top-tier bank
holding company that has more than $700 billion in total assets or more
than $10 trillion in assets under custody.\26\
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\23\ See 79 FR 24528 (May 1, 2014).
\24\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR 208.43(b)(1)(iv)(B)
(Board); 12 CFR 324.403(b)(1)(v) (FDIC).
\25\ 12 CFR 208.43(b)(1)(iv)(B) (Board); 12 CFR
324.403(b)(1)(ii) (FDIC).
\26\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC).
Michael J. Hsu,
Acting Comptroller of the Currency.
Board of Governors of the Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on November 8, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-25159 Filed 11-17-21; 8:45 am]
BILLING CODE P